I'm seeing things a bit differently today, and I want to modify the list of companies I recently compiled while looking for brand value in today's market.
Two weeks ago, I wrote a piece on the values of certain well-known brands. I suggested that brands could hold their relative value in an inflationary environment, and that they may be ripe targets for foreign acquirers, given the weakened dollar.
The piece included a short list of companies trading at fairly low multiples to their estimated brand values. The InBev offer to acquire Anheuser-Busch (NYSE: BUD ) at about four times the value of its brands was the benchmark. There was one company I could have listed, but left off.
Eastman Kodak (NYSE: EK ) was actually trading at less than the estimated value of its brand at the time. I assumed its deep value was indicative of a terminal condition. After looking at its Motley Fool CAPS rating, it seemed others agreed with that assessment. In considering Kodak, I recalled the story about the high product quality of the very last buggy whip manufacturer in business after the automobile was invented. I'll bet that company had a strong brand name as well. So I left Kodak off my list, but now I'm reconsidering it. You deep value players may want to do so, too.
Yesterday, Kodak announced that it will receive $581 million from the IRS after auditing claims from the mid-1990s -- $306 million in refunds, and $275 million in interest. Talk about found money -- and to think I get excited when I find a fiver in my pants pocket. It makes me want to go back and look at some of my old tax returns. Kodak said it intends to use that money to repurchase shares -- as much as $1 billion worth, or about 25% of outstanding shares.
Does it have more than $400 million in addition to the refund to buy a billion dollars' worth of stock? Actually, it has about $2.2 billion in cash. In its annual report valuing the best global brands, Interbrand placed the value of the Kodak brand at about $3.9 billion. That's more than $6.6 billion in just the brand, cash on hand, and an IRS refund check in the mail.
Yet even after gaining almost 14% on the announcement, Kodak's market cap is just barely more than $4 billion. I'm not usually on the lookout for deep value plays, but this is getting my attention. It is certainly cheaper than the 3.7 times at which Canon (NYSE: CAJ ) is trading for its $10 billion market brand and $7 billion cash.
It would seem that some company out there would be able to put some leverage on its existing business by acquiring Kodak's globally known and respected brand. The price certainly appears to be about right. Then again, does anyone know the name of the last buggy whip maker?